Changes to creative industry tax relief announced

Video Game Expenditure Credit

In potentially-positive news for creative industries, after a consultation in 2022, the Finance Bill (FB) of 2024 incorporates legislation that introduces fresh reliefs for the audio-visual and video games sectors. These newly established reliefs, labeled as the audio-visual expenditure credit (AVEC) and the video games expenditure credit (VGEC), are set to replace the existing incentives for film, TV, and video games production. Each eligible film, TV program, or video game will be considered a qualifying production, allowing the associated qualifying company to elect under the new rules to treat the production as a separate trade for the purpose of this relief.

The guidelines for computing the profits or losses of the separate trade and the definitions of qualifying expenditure for the new expenditure credits (ECs) remain fundamentally consistent with the current incentives. However, there is a notable change, eliminating references to EU/EEC expenditure. Eligible expenditure for the EC is now determined as the lower of 80% of the company’s core expenditure and the portion spent in the UK, covering expenditures on goods or services used or consumed within the United Kingdom.

The rate of EC that a company can claim is contingent upon the type of production. For qualifying animations (either a TV program or a film) or children’s TV programs, the rate is 39%. For all other film or TV productions and video game productions, the rate is 34%. Similar to the research and development (R&D) expenditure credit, both AVEC and VGEC are taxable credits, augmenting the taxable profit before being available to offset the company’s Corporate Tax (CT) liability for the current or potential periods, or transferable to group companies. Any unused EC can be claimed as a payable credit.

Development companies have the option to elect for the new AVEC or VGEC single trade rules for accounting periods ending on or after January 1, 2024, with split period rules applying to any accounting period spanning that date. A transitional period between now and April 1, 2027, will allow the current reliefs in Parts 15 to 15B CTA 2009 to remain available. New trades starting on or after April 1, 2025, must seek relief under one of the new expenditure credit regimes, while existing productions can still avail the existing reliefs until April 1, 2027.

Changes in tax relief for other creative industries

In addition to these changes, FB 2024 introduces administrative adjustments affecting all creative sector reliefs and technical clarifications for cultural reliefs. Starting April 1, 2024, an additional information form (AIF) will become mandatory for all claims, filed online. The deadline for filing a claim for relief or expenditure credit will be redefined in relation to the end of the relevant period of account. Certain exclusions are also introduced, such as the ineligibility for credit under AVEC, VGEC, or cultural reliefs if the relevant production company is in liquidation or administration. Expenditure with connected parties will be subject to exclusion of any excess payment beyond the relevant costs incurred by the connected party, unless it represents an arm’s length price.

For theatre and orchestra relief, capital expenditure is clarified to be excluded, and for all cultural reliefs, certain incidental costs to the production are not treated as core expenditure. Specific clarifications are provided for theater relief, emphasising the “playing of roles” requirement, and for orchestral relief, the time limit for electing to treat a series of concerts as one production is adjusted. In the case of museum and gallery exhibitions, the admission requirement is specified to mean admission to the physical location of the exhibition.

The government’s emphasis on expenditure credits suggests their potential as qualified refundable tax credits under the OECD Pillar 2 rules. Film, TV, and video game development companies, along with their advisers, will need to quickly familiarise themselves with these new reliefs and make informed decisions regarding the transition of existing developments into the new schemes.

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